Income Tax Act 2007 section 23

The calculation of income tax liability

Section 23 sets out the seven-step process for calculating a taxpayer's overall income tax liability for a tax year, moving from total income through to the final amount of tax owed.

• Total income is assembled from all chargeable sources, then reduced first by reliefs (to arrive at net income) and then by personal allowances — each deduction is tracked against individual income components so the correct tax rates can be applied at Step 4
• Tax is calculated at the applicable rates on each remaining component, and the resulting amounts are added together to give the gross tax figure before any reductions
• Tax reductions (such as those listed in section 26) are then deducted from the gross tax figure, following the ordering and limitation rules in sections 27 to 29
• Finally, any additional tax charges listed in section 30 are added on, giving the taxpayer's total income tax liability for the year